3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their future cash flows, and more. At the small-cap stock-picking service Motley Fool Hidden Gems, even in this market the analysts are beating the S&P by five percentage points by finding undervalued stocks that have been ignored.

Yet what if we could find a way to whittle down our list of prospects beforehand, finding those whose engines are just getting warmed up?

Using the investor intelligence database of Motley Fool CAPS, I screened for stocks that members had marked up before their prices began to move up over the past three months while the market headed south in dramatic fashion. That underscores the research suggesting that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst.

My screen returned just eight stocks when I ran it, which suggests how difficult a time it is, and included these recent winners:

Source: Motley Fool CAPS screener; trailing performance from Sept. 5 to Dec. 4.

While that tells us which stocks we perhaps should have looked at three months ago, what we want are the stocks that we ought to be looking at today. So I went back to the screener and looked for stocks that had just bumped up to three stars or better, sport valuations lower than the market's average, and whose price hasn't moved up by more than 10% over the past month.

These three stocks out of the 50 the screen returned are still attractively priced, and some CAPS members think they're ready to run today.

Source: Motley Fool CAPS screener; price return from Nov. 7 to Dec. 4.

Let's take a look at why investors might think some of these companies will go on to beat the market.

Alpha Natural Resources
Now that it's on its own again after the failed marriage to Cliffs Natural Resources (NYSE:CLF), Alpha Natural Resources faces an immediate future that's a little dicey because steelmakers aren't demanding as much coal. Even pricing in all the negative news, CAPS member Jgrowth1 finds Alpha Natural Resources to be significantly undervalued.

OK, the merger did not go through. I am disappointed. We must now value ANR as a stand alone company. Two metrics currently stand out about ANR. First, they have approximately $600 million in the bank. So that means they have about $8.50 per share in cash. They still should generate good cash flows even in a slow economy. Coal contracts are pretty clean (no pun intended). Second, they are expected to earn about $12.50 per share in 2009.... My opinion, ANR is undervalued and very attractively priced.

BCE
Another corporate transaction that hasn't been easy involves BCE; a proposed buyout from private investors went awry when auditors couldn't certify the company as solvent. CAPS member dibble905 sees the Canadian telecom as a prospect regardless.

Upside-Solid operating cash flows which are more or less recession proof. If the buyout goes through, you can make a quick gain. Downside-If the buyout fails, this stock will drop another $2-3. With everything put into consideration, the low P/E gives it an attractive starting point to a cash cow.

ProLogis
Third-quarter results at real estate investment trust ProLogis may have been behind its CEO's decision to fall on his sword last month and resign. But hopes that the Treasury will inject even more money into the mortgage sector led to investors bidding up the company's shares, along with those of other REITs like Kimco Realty (NYSE:KIM) and Avalon Bay Communities. CAPS member SirMikhail says it's likely that ProLogis will recover slowly.

This REIT stock is obviously underpriced at the moment. ProLogis is a market leader and has properties valued about 40B. The board proposed to cut [its] dividend to $1. Yet, even so, the dividend yield will remain huge at this low price. The company is mostly likely piling all bad news at the moment to increase its long-term value. When the dividend is cut from $2.28 and CEO resigns, it sounds terrible. However, a half-year later the company will raise its dividend little by little [spreading] good news over time.

Three for free
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Why not head over to the completely free CAPS service? Let us hear what you've got to say about these or any other stocks that you think are starting to rev their engines.